The document provides an overview of how hedge funds calculate their assets, emphasizing the distinction between traditional assets under management (AUM) and regulatory assets under management (RAUM). It explains that AUM is calculated net of liabilities, while RAUM includes all managed assets without deducting liabilities and can lead to confusion with traditional metrics. Additionally, the document outlines various factors included in RAUM such as hedging techniques, long and short positions, leverage, and the treatment of separate accounts and funds.

1. HOW HEDGE FUNDS
COUNT THEIR ASSETS

2. 2
Overview
How Hedge Funds Count Their Assets
The hedge fund industry has grown in recent years to be a leading investment
partner for institutions and individuals around the world. While hedge funds have
become a popular, often-utilized investment tool, many aspects of the industry are
still misunderstood.
This presentation serves as a basic introduction to the methods the hedge fund
industry uses to calculate their assets.

3. 3
Assets Under Management
AUM: The Traditional Calculation
Fund managers calculate their assets under management on a net basis, which is
the difference of net assets over shares issued. The calculation is made in
accordance with U.S. Generally Accepted Accounting Principles (GAAP).
Regulators required hedge fund managers to use this traditional calculation
because it best represents the amount of investor capital at risk.
AUM represents “investors’ equity” (like shareholders’ equity) and is an accurate
representation of investors’ capital at risk (i.e., the amount of money that investors
actually have invested in a manager’s fund(s)).

4. 4
RAUM
In 2012, the SEC created a new metric to calculate fund assets for regulatory
purposes (Regulatory Assets Under Management). This may be confusing for
those following the industry who know about assets under management (AUM) or
investor capital at risk because RAUM it is not consistent with these metrics.

5. Asset Calculation
The RAUM calculation requires managers to report assets managed without
deduction of any offsetting liabilities.
RAUM represents all of the assets managed by a single manager, including assets
of separate accounts and separate private funds.
It is important to remember that hedge funds are legally separate entities, often
with different investors and can engage in distinct trading activities in different
assets and markets.
Any losses of one fund are borne exclusively by the investors in and
counterparties to that fund, and do not subject other funds managed by the same
adviser to losses.
5

6. 6
Assets Reported
In addition to the money a manager and its investors have committed to a fund,
and the gains or losses generated, RAUM includes:
• Hedging Techniques used to Offset Portfolio Risk
• Long and Short Positions (on a gross basis)
• Leverage
• Proprietary assets, assets managed without receiving compensation, or assets
of foreign clients, all of which an adviser may currently exclude from its AUM
• The value of certain private funds that hold significant assets that are not
securities and that can be illiquid and difficult to value
• Uncalled capital commitments (applies mostly to private equity)

7. 7
For more information, visit:
www.managedfunds.org
@MFAUpdates
MANAGED FUNDS ASSOCIATION